Week in brief 150710

An Aon Aviation exercise which compared the performance of the Bloomberg World Airline index with an Aon-created basket of low-cost carriers against the S&P 500 index for 2010, suggests that the markets are relatively bullish on the industry at the moment. While perceptions appear to have been dented by the volcanic eruption at the end of April, they have subsequently recovered and the sector is once again beginning to offer superior returns over the S&P 500 based on an investment made at the start of 2010. The analysis also shows that the sector still has a significant way to go before it claws its way back to the heights witnessed in 2007 when the airline sector was habitually outperforming the S&P 500. Interestingly, the performance of a sample of low-cost carriers appears to have closely followed the main airline index.

Stockbroker RBS said late last week that Tiger Airways' expansion to an estimated 30 domestic aircraft by 2016 is likely to see Australian airline competition continue to intensify after a 15 per cent fall in leisure fares over the last year. RBS estimates that Tiger enjoys significant cost advantage over both Jetstar and Virgin Blue. RBS said Tiger's yields are also lower than  its rivals, but with both vowing to compete to defend market share, the broker notes that something has to give, with Virgin much more sensitive to a drop in yields than Qantas.

Meanwhile, Travel Daily reports that Indonesia's Lion Air has said that it plans to fly to Perth and Sydney “in the near future”. The carrier is Indonesia’s largest privately owned airline and already operates low-cost services between Jakarta and 42 destinations including an extensive Indonesian domestic network as well as international flights to Malaysia, Saudi Arabia, Vietnam and Singapore. “Our plan will be to fly to Australia from Denpasar, Bali, which is attractive to tourists from there,” the airline's Edward Sirait said. "We hope the end of this year could be realised, but it all depends on the other side”.

Airbus CEO Tom Enders has questioned whether the WTO is capable of handling the complexity of the two subsidy cases it has been trying to deal with for more than five years. This followed the announcement of a delay in any determination about the Boeing side of the issue.

Enders said that, "The ongoing struggle of the WTO to address the world as it was in 2004... raises the question whether it can succeed in its basic mission to create a climate for a negotiated settlement on the basis of fair market rules in the interest of both the industry and the employees on both sides of the Atlantic. Another delay is a disappointment. But we are looking forward to the Boeing subsidies panel report. It will eventually come, and it will show: Boeing has received billions of dollars in WTO illegal subsidies."

Late June Boeing notified all B767 aircraft operators about cracks found on two American Airlines B767-300 aircraft, and by mid-July (that's now) will recommend more frequent maintenance checks. American Airlines found the cracks in large pylons that hold engines onto the wings of two of its aircraft. Boeing will now recommend decreasing the number of flight cycles between inspections of the pylon mid spar fitting from every 1500 flight cycles to possibly to as low as every 400 flight cycles. About 260 aircraft constructed in the same manner as the damaged American Airlines aircraft could be affected by the recommendation, Boeing said.

On the positive side, Boeing will have a 787 at Farnborough next week. One of the flight test aircraft, ZA003, will be on static display at the event for two days and open for scheduled tours. This particular aircraft is the test vehicle for seats, galleys and other cabin safety and comfort systems.

A world first model for predicting fluid flows close to surfaces will enable engineers to reduce drag in vehicles, and in turn, lead to more efficient and greener planes, cars and boats, according to a University of Melbourne study. Research team leader and Federation Fellow Professor Ivan Marusic from the Department of Mechanical Engineering at the University of Melbourne says skin-friction drag accounts for 50 per cent of fuel expenditure in aircraft, so even modest reductions in drag would save money and significantly reduce carbon emissions. “When air flows over a surface, skin friction drag is created. Most of this drag is a result of the chaotic and unpredictable nature of the boundary layer – the layer immediately between the object and the airflow. Accurate knowledge of how this air flows over a surface will provide engineers with more detailed information about resistance,” he says. The findings have been published in detail in Science magazine.

Lufthansa won the best off-line international carrier award for the fifth consecutive year at Australia’s travel industry awards, held at the Westin Hotel in Sydney over the weekend. Singapore Airlines took out the best on-line international carrier award and Qantas got the gong for best domestic airline.